Explanation
The rate of change in sales depend on three effects: response to advertising that acts positively on the unsold portion of the market via, the loss due to forgetting or possibly due to competitive factors that act negatively on the sold portion of the market via, and a random effect using a diffusion or White noise term that can go either way.
- The coefficient is the coefficient of the effectiveness of advertising innovation.
- The coefficient is the decay constant.
- The square-root term brings in the so-called word-of-mouth effect at least at low sales levels.
- The diffusion term brings in the random effect.
Read more about this topic: Sethi Model, Model
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